The Bank of Ghana is set to increase the minimum capital of banks from GH¢120 million to GH¢200 by July this year, following extensive engagements with stakeholders in the financial sector.
This is to inject more capital into the banks and make them stronger and resilient to undertake big ticket deals both locally and internationally.
A highly placed source at the BoG has told the Graphic Business in an interview that though the government is yet to approve the request, the banks will have two years to increase their capital once the announcement is made in July.
Already, some banks are struggling to meet the GH¢120 million requirements set after several waivers were granted them by the central bank.
Analysts fear that the new capital requirement announced will lead to some mergers and acquisitions in the banking sector.
According to the source, the BoG is currently dealing with several pending applications for licences for the establishment of new banks and is, therefore, confident that the increase once announced will lead to some mergers and acquisitions in the banking sector.
“This proposed increase has even become more necessary because of the several applications for waivers from the banks to grant, loans beyond their required limits,” the source said.
Ghanaian banks face high asset risks, despite solid capital buffers, stable funding and an economic recovery.
Banks in Ghana continue to benefit from strong and stable benefit from strong and stable deposit inflows, with deposits making up 73 per cent of total liabilities.
Time bound recapitalisation
The IMF has asked the BoG to ensure that banks with shortfalls in minimum capital prepare “credible and time-bound recapitalisation plans” that will serve as blueprints for the strict rebasement of their capital reserves.
It said in its staff statement of the 2017 Article IV Consultation Mission for the fourth review under the extended credit facility that failure to do that would adversely impact on credit and the real economy and financial deepening and ultimately lead to quasi-fiscal costs to the BoG.
The BoG had in March this year ordered all weak banks that were unable to meet the GH¢120 million minimum capital adjustment to submit to the central bank a comprehensive recapitalisation plan.
The Governor of the BoG, Dr Ernest Addison, in an interview with the Graphic Business on the sidelines of the April Spring Meetings of the International Monetary Fund (IMF) and the World Bank in Washington, DC, said that the central bank was eagerly awaiting the recapitalisation plans of the banks.
“On the basis of the plans to be submitted by the banks, some major decisions will be taken. Those plans will have to be credible and should be convincing enough to stand the test of time,” he said.
Assets Quality Review
Stressing on the Asset Quality Review (AQR) of banks, Dr Adisson maintained that the exercise was necessary to stabilise the activities of the banking sector due to loan portfolios of banks.
“I’m sure you are aware of the asset quality review. Due to some of the findings of the Asset Quality Review, the banks were asked to make additional provisions for some of their loans and on the basis of that some banks need to recapitalise,” he said.
The Second Deputy Governor of the Bank, Dr Johnson Asiama, also said at the 10th Anniversary Ball of Fidelity Bank on Friday, April 28, 2017 in Accra that the central bank would insist on the right things to be done.
“We have subsequently issued supervisory letters to this effect, with strict timelines for compliance by all. The AQR exercise highlighted impairment in banks’ loan books, capital deficiencies, credit concentration in the energy sector and some latent vulnerability in the banking industry.”
He indicated that banks were required to reclassify all their downgraded facilities and book their appropriate provisions.
“For banks which suffered capital erosion leading to breaches in solvency and single obligor limits, they are required to furnish the Bank of Ghana with an acceptable capital plan that will restore them to the prescribed capital adequacy benchmark and/or plans to wean them off exposure limit breaches,” he said.
Asset risk for banks in the country is expected to remain high over the months, with non-performing loans rising to 17.4 per cent of total lending in December 2016, from 14.7 per cent in December 2015.
The directive for clear recapitalisation plans by the BoG is, therefore, seen as a major attempt to bolster investor confidence in the banking sector.